Metro food, electronics units go their separate ways

Reuters Staff

3 Min Read

Olaf Koch, Chairman of the Board of German retailer METRO, rings a bell during the public offering of their separated food and consumer electronics units at the Frankfurt stock exchange in Frankfurt, Germany July 13, 2017.Ralph Orlowski

FRANKFURT (Reuters) - German retailer Metro MEOG.DE completed its split into two companies on Thursday as its food business and consumer electronics division started trading independently on the Frankfurt and Luxembourg stock exchanges.

Metro hopes the split will allow the independent companies to pursue more acquisitions and trigger a revaluation of the stock as Metro has traded at a discount to other pure wholesale retailers such as Sysco (SYY.N) and Britain's Booker (BOK.L).

"We welcome the split as it is likely to unlock value for investors," Equinet analysts Christian Bruns and Mark Josefson, who rated the combined company a "buy", wrote in a note.

However, the companies have warned that trading is likely to be volatile in the early days, especially as the split means adjustments are needed in the German mid-cap index .MDAXI in which Metro was listed.

Shares in the Metro food business (B4B.DE) traded at 19.47 euros by 0735 GMT, while those of the consumer electronics business, to be renamed Ceconomy (CECG.DE) were at 9.33 euros, together slightly below the 29.185 euros for the combined group at the close of trading on Wednesday.

Bankers had spent the last few weeks meeting investors, informing them about the two companies and drumming up demand for the shares.

"The work was about the same as for a normal IPO," a person close to the deal said.

Metro, a sprawling conglomerate, has spent several years restructuring and selling non-core businesses such as its Kaufhof department stores, to focus on its cash-and-carry business and Media-Saturn electronics chain.

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The new food business comprises wholesale stores, which serve hotels, restaurants and independent retailers, along with Real hypermarkets in Germany. Together they had 2015-16 sales of 37 billion euros ($42.4 billion) and operate in 35 countries.

Ceconomy is Europe's biggest consumer electronics business ahead of Dixons Carphone (DC.L), running more than 1,000 stores in 15 European countries, with sales of 22 billion euros in 2015/16.

"We remain cautious on Metro's perennial problems. It remains to be seen to what extent the new combined businesses will be able to finally reduce the high exceptional charges and optimise the tax rate," said Bernstein analyst Bruno Monteyne.

Monteyne noted that the Metro food business, which makes the bulk of its profit in Russia, will be more exposed to the volatile rouble than the combined group and called on the company to disclose more details on the Russian and German businesses in future.